By Hubert Horan, who has 40 years of experience in the management and regulation of transportation companies (primarily airlines). Horan has no financial links with any urban car service industry competitors, investors or regulators, or any firms that work on behalf of industry participants

Part Eight of this series[1] documented the dreadful flaws in Brad Stone’s major 2017 book on Uber, “The Upstarts.”[2] “The Upstarts” was not independent journalism. Stone acknowledged it was an explicit attempt to tell the story Uber wanted told, and described his efforts to convince Travis Kalanick that the book would help Uber tell its story. The central questions in the “The Upstarts” were “Did the benefits of their [Uber and Airbnb’s] dominance outweigh the well-publicized drawbacks? What was their true impact on cities? Were they good for society or bad?” (p.243)

But few business books have ever gotten their story more completely wrong. “The Upstarts” valorized Travis Kalanick as the leader of a heroically innovative company that was “changing the world” just as an avalanche of stories about Uber’s massive losses, dysfunctional management and corporate culture, systemic sexual harassment, intellectual property theft, obstruction of law enforcement and other endemic problems destroyed the credibility of Stone’s narrative.

Stone, the senior executive editor for technology at Bloomberg News, has just published a Bloomberg BusinessWeek story entitled “The Fall of Travis Kalanick Was a Lot Weirder and Darker Than You Thought.”[3] The central questions in “Weirder and Darker” were how did Uber suddenly change “from world’s most valuable startup to world’s most dysfunctional” and whether replacing Kalanick with Dara Khosrowshahi successfully solved Uber’s problems.

“Weirder and Darker” follows the exact same structure as “The Upstarts” and is equally flawed. Stone focused narrowly on the personalities of select insiders while ignoring all evidence about Uber’s economic and financial performance and the views of anyone outside Uber’s inner circle. He force fit his evidence into a pre-determined narrative designed to create a favorable emotional impression but never actually answered the questions he posed and gets important parts of the Uber story entirely wrong. And Stone never mentioned that “Weirder and Darker’s” portrayal of Kalanick and Uber is the polar opposite of what he’d published in “The Upstarts” last year.

Stone’s new Uber narrative is wildly inconsistent with the story he told last year

The narrative in “Weirder and Darker” is easy to summarize. Uber’s “melodrama began [o]n Jan. 27 [2017]” and grew from that point as a stream of negative publicity emerged[4]. The underlying problems were Kalanick’s insistence “that the company had a public-relations problem, not a cultural one” and aspects of Kalanick’s personality (especially his “unrelenting combativeness”) that fueled Uber’s “absurdly bro-ish cultural values“, and alienated critical supporters such as Uber President Jeff Jones and Google Ventures (a major shareholder). Kalanick “embarked on a yearlong starring role as the villain who gets his comeuppance.”

Since “Kalanick was unable or unwilling to right himself” that comeuppance would be delivered by the Board, who hired former Attorney General Eric Holder to do an exhaustive review of Uber’s cultural problems (“We will leave no stones unturned. This company has one opportunity to get this right.”) and fired Kalanick after Holder delivered his report. New CEO Khosrowshahi’s personality makes him ideal to lead Uber into the future because he “was all that Kalanick wasn’t or couldn’t be: humble, a good listener, and a diplomat.” Khosrowshahi has already found a major capital infusion (from SoftBank) and is committed to taking the company public by October 2019.

Almost every element of Stone’s 2018 “Weirder and Darker” narrative contradicts his 2017 “Upstarts” narrative, yet Stone never acknowledges that his previous story is no longer operative. Kalanick’s “unrelenting combativeness” is now the root cause of Uber’s crises, but in “Upstarts” it was the driver of Uber’s great success and was perfectly suited to the marketplace challenges it faced (“The meeting thrust Kalanick into the thick of the familiar battle between new technology and the old, outdated ways of doing things” and the ”powerful taxi interests” (p.122)). Kalanick’s hyper-aggressive, anti-diplomatic style was highly admirable (“Facts and intellectual arguments, not charm were his weapons, and he wasn’t about to kiss any political rings.” (p.191)). Kalanick’s willful refusal to obey existing laws is honorable because those obstacles would prevent Uber from “unlock[ing] the true potential of an on-demand transportation service.” (p.299).

The “absurdly bro-ish cultural values“ that Stone attacked in “Weirder and Darker” (and were formally opposed by the Board after its post-Fowler investigation), were glowingly described in “Upstarts” (pp.315-317). Stone pointed out the huge effort Kalanick had put in to articulating these values, noted how they culturally unified a rapidly growing company, emphasized that “many of Uber’s principles were comparable” to Amazon’s, and quoted senior staff saying that the rollout of the corporate values “was one of the most moving moments I had at Uber.”

“Upstarts” refutes the idea that Kalanick’s monomaniacal culture suddenly emerged as an issue on January 27, 2017; it had been clear to the Board from the earliest days of its operation. In 2010, Kalanick said “I’ll stop at nothing to see Uber go to every major city in the US and the world” (p.123). By early 2011 he had “expelled from his inner circle anyone he thought might stand in the way of Uber’s manifest destiny to conquer the world.”(p.153).

In “Weirder and Darker,” Stone claims that Kalanick’s post January 27th 2017 missteps were horribly damaging and justified his dismissal, but when he documented the same type of missteps in “Upstarts” he insisted they were all minor issues that could be easily excused. In “Weirder and Darker,” Emil Michaels’ (Kalanick’s most important lieutenant) is emblematic of Uber’s cultural rot and senior staff are petitioning for his dismissal.

But in “Upstarts,” issues with Michaels are easily brushed aside. Stone briefly notes multiple public reports that Michaels led efforts to harass journalists skeptical of Uber, but then uncritically repeats Michaels’ false claim that all of these reports were fabrications. Stone expects readers to swallow the idea that Michaels had only wanted to “create a coalition for responsible journalism.” (p.262). After all, he had “a reputation of being effective, loyal and upbeat” (p.247). Stone glossed over false Uber claims that its drivers made over $90,000 a year by suddenly focusing on how a Uber recruiter on Chicago’s South Side was creating wonderful opportunities for people short on cash.(p319-21). Uber burned over $1 billion of its investors’ cash on its failed China venture, but Stone approvingly quotes Kalanick’s view that this effort was worthwhile because it was “romantic” and a chance to “do something interesting and beautiful” (p.329) and gives no indication that the China venture led to serious internal conflict.

Because Stone is trying to force-fit events into a simplistic narrative, he gets important parts of the Uber story badly wrong

Stone claim in “Weirder and Darker” that the shift “from “world’s most valuable startup” to “world’s most dysfunctional” is explained by major changes in Kalanick/Uber behavior first observed in early 2017 simply doesn’t hold water. The pre-2017 problems mentioned in “Upstarts” (journalist harassment, competitor sabotage, fabricated claims about driver pay, huge international losses) are every bit as problematic as profane tirades against drivers or mishandling the JFK taxi strike or the Trump business council. Much of the bad 2017 publicity (Greyball, tolerance of systemic sexual harassment) concerned longstanding patterns of bad behavior. Stone wants his readers to think major new problems had suddenly arisen since he wrote “Upstarts”, but neither Kalanick’s personality, nor Uber’s culture had actually changed.

Stone’s simplistic good guys/bad guys narrative falsely portrays the Board as responsible adults who suddenly discover major problems they’d never noticed before and then take the radical action needed to tackle these issues and put Uber back on a path to glory.

But Uber’s board had always been fully aware of these longstanding behavioral issues. Kalanick’s management style had been generating negative publicity since 2010 but it had also been generating staggering rates of growth and an unprecedented $68 billion valuation, which they saw as an entirely satisfactory tradeoff. Thus the Board was always 100% complicit with the bad behavior that Uber’s culture produced, and (as Stone demonstrated in “Upstarts”) could always accept management’s claims that the bad publicity had been contrived by Uber’s enemies, or find other excuses for brushing it under the rug. The Board never uttered a single word critical of any management action in public until the post-Fowler public outrage could no longer be contained.

As noted, very little of the bad publicity Uber faced in early 2017 had any material impact on Uber’s financial performance, and none of it raised issues that were new or had dramatically worsened. But Stone’s narrative required major, new problems that would force the responsible adults on the Board to take radical action. But the triggering events in Stone’s story – things like the discovery that subprime loan losses were worse than expected, and Kalanick’s demand that Uber security search staff emails to identify the source of leaks — were also financially trivial and obviously do not answer Stone’s question as to why the Board was suddenly motivated to violate the longstanding expectation that “Silicon Valley CEOs are supposed to be sacrosanct.”

Stone’s contrived narrative also means that he gets much of the story of Kalanick’s actual dismissal wrong. Stone violates the chronology of his story and describes the release of the Eric Holder report, which occurred in mid-June, coincident with Kalanick’s dismissal, in conjunction with events from March and April.

Stone’s “no stone unturned” quotes deliberately misrepresents how Holder’s investigation was actually conducted. The Board had narrowly limited the Holder investigation to the charges in Fowler’s blogpost; other “cultural” and behavioral issues were out of scope. The original recommendations were limited to things like increased sensitivity training with no actions taken against Kalanick, Michaels or other senior executives close to Kalanick. The Holder review had been overseen by Board member Arianna Huffington, a strong Kalanick ally, who gave multiple press interviews claiming the sexual harassment problem was limited and would soon be under control. “Yes, there were some bad apples, unquestionably. But this is not [as Fowler had charged] a systemic problem.”

The whitewash collapsed with the news that Kalanick and Michaels had obtained the confidential police records of the rape of a Uber passenger in New Delhi (also noted by Stone out of sequence). In the following seven days, the Holder report was hurriedly rewritten, and the Board had no alternative to firing Kalanick and Michaels.[5]

Stone’s narrative misleads readers about the Board, which had been just as dysfunctional as senior management and heavily complicit in Uber’s behavioral/cultural problems long before 2017. Huffington and Holder were trying to cover up serious problems instead of fixing them. They might have gotten away with it if the story of the rape victim’s police file hadn’t emerged. Arianna Huffington was resented not because she was trying to get Uber to hire her wellness company, as Stone claims, but because she had made herself into a central character in the Board’s “Game of Thrones” dynamic, despite not being an actual investor and not having any actual expertise about Uber’s business.

But just as the Board weren’t really the responsible adult good guys in this story, Kalanick doesn’t actually fit the simplistic, suddenly out-of-control bad guy role (the “villain who gets his comeuppance”) Stone has assigned him.

Stone inaccurately describes Google Ventures as a close ally alienated by Kalanick’s impulsive, hyper-aggressive 2017 push into driverless cars. As Stone himself described (“Upstarts” p.244-7), Google had decided to pursue driverless cars independent of Uber in 2013, and Kalanick (quite rationally) realized that future Google domination of robocars could eventually pose an existential threat to Uber. Kalanick did not remain closely in touch with Uber staff while on temporary leave as CEO because he “was unable or unwilling to right himself” as Stone insists, but because he was only on temporary leave at that point, he knew that no one else was actually in charge and because he was still a critically important bBoard member.

Benchmark did not suddenly decide to fight Kalanick because of subprime loan losses discovered in 2017. Benchmark’s fight with Kalanick began much earlier over Uber’s massive losses in China and Kalanick’s ongoing refusal to consider the IPO Benchmark needed to realize actual returns. This was not a battle between good and evil; these were complex strategic issues where both sides had legitimate (but conflicting) concerns, but dysfunctional governance processes (that both sides had contributed to) made compromise and resolution impossible. Khosrowshahi was not responsible for Softbank’s recent stock purchases or the commitment to a 2019 IPO. Both had been engineered by Benchmark prior to Khosrowshahi’s hiring as part of their campaign to limit Kalanick’s control of the Board.

Stone wants his readers to believe that Uber’s turmoil can be understood entirely on the basis of personalities, and that financial results had nothing to do with it

Although Stone totally changed the components of his account, the underlying narrative structure of “Upstarts” and “Weirder and Darker” are virtually identical. In both cases Stone’s narrative is based exclusively on the words and actions of a handful of company insiders. In both cases Stone makes no attempt to provide input or perspective from drivers, local officials industry experts, or any other independent sources, or to put Uber’s issues in the context of the experiences of any other comparable Silicon Valley funded startups.

Thus Stone’s readers have no ability to evaluate whether Uber’s problems are systemic or aberrant, deep-rooted or easily fixed, unique to Uber or common among startups. His readers have nothing to go on except for the sense they get of these personalities based on these limited quotes and descriptions. They can’t tell whether insiders who seem likeable have covered up bad management decisions with self-serving assertions, or whether less likeable insiders have made good decisions that happen to have been difficult and unpopular.

In both cases Stone completely ignores profitability, cash flow, competitiveness or any other objective financial or economic evidence. In both cases Stone completely fails to answer the central questions he has posed because it is impossible to answer these questions without substantial economic evidence. Stone deliberately concealed information about Uber’s massive losses from readers of “Upstarts” because a company that had failed to produce any economically sustainable efficiency or service advantages could not have possibly offset their drawbacks and problems and produced net benefits for society.

Similarly, by excluding financial/economic evidence, “Weirder and Darker” cannot elucidate how Uber suddenly changed “from “world’s most valuable startup” to “world’s most dysfunctional.” Stone’s efforts to account for this dramatic shift on the basis of the sudden deterioration of Kalanick’s personality and the Board’s sudden realization that they no longer liked the management practices that had driven Uber’s huge growth and valuation cannot be taken seriously.

Stone underplays or ignores the many financial issues that Board members were actually concerned with, including the billions in ongoing losses (over $10 billion in the last three years alone)[6], the Uber China debacle, the dubious investments in other businesses such as logistics and driverless cars, the threat of an extremely costly resolution to the Google lawsuit and Kalanick’s refusal to focus on the IPO needed to provide its investors with actual returns.

The personalities and biases of key insiders can obviously influence major business decisions and competitive battles and news reports can usefully consider how those personalities can influence complex business issues at the margin. But Stone’s approach absurdly assumes that the investors that put $13 billion into Uber are totally driven by personality issues and pay little attention to things like profitability, cash flow or return on investment.

Stone’s pieces are PR/propaganda, not journalism

Both “Upstarts” and “Weirder and Darker” follow the structural conventions of PR/propaganda, not journalism. Both assemble a set of events (and, I presume, quotes) that are factually accurate and opinions that seem reasonable, that have been cherry-picked to fit a pre-determined narrative. All evidence inconsistent with that narrative has been excluded; including evidence published by Stone’s colleagues at Bloomberg. That narrative presents a simple good guys versus bad guys type fight (heroic innovators fighting corrupt defenders of the taxi industry status quo, responsible Board members saving their company from a CEO who “was unable or unwilling to right himself”) that misrepresents the actual complexity of events and conflicting interests.

These narratives are designed to force readers to respond on a purely emotional level and to see the triumph of the good guys as the only legitimate outcome. These narratives are constructed so that the narrator and his attempts to emotionally manipulate readers towards specific conclusions remain largely invisible. Absolutely no independently verifiable data relative to the battle is presented (e.g. Stone’s complete refusal to present any Uber financial/economic data) that readers might use to pose questions that could undermine the story lines. They are structured as a complete package that will eliminate the need for further investigation, not the starting point for further discussion.

While the two pieces seem quite different on the surface — the story of the world’s most valuable startup versus the story of the world’s most dysfunctional startup — in both cases, Stone’s objective was to construct the most positive pro-Uber narrative possible at that point in time. Stone was not working on behalf of his readers but on behalf of Uber’s shareholders. Stone constructed “Upstarts” as a heroic innovation story, but constructed “Weirder and Darker” as a redemption story since Uber’s bad behavior had become more widely known. Since propaganda pieces are self-contained, and not part of an ongoing public discussion, the fact that the evidence, logic and conclusions of the two pieces are wildly inconsistent can easily be overlooked.

In both cases, Stone’s desire to write the most positive pro-Uber story possible meant preventing readers from understanding or thinking about Uber’s actual business model, their actual competitive efficiencies and their actual financial performance.

If “Upstarts” had been grounded in economic evidence about the business model, readers would have quickly recognized that Uber’s growth had been driven by massive subsidies not cutting-edge innovations, that Uber’s investors had always been pursuing industry dominance and market power, and that a company unable to achieve sustainable profits in competitive markets could not possibly be seen as beneficial for society.

If “Weirder and Darker” had been grounded in economic evidence, readers would have quickly recognized that things like lawbreaking and toleration for systemic sexual harassment were inevitable byproducts of a business model that depended on Kalanick’s monomaniacal, hyper-aggressive focus on growth at all costs, and that replacing Kalanick with someone who is “humble, a good listener, and a diplomat” will not reverse $4-5 billion in annual losses within the next 18 months.[7]

Any honest journalist who had attempted to tell these stories would have included outside voices and perspectives, and provided greater financial and industry context. There would be no pretense that definitive truth had been discovered, and the existence of conflicting evidence, complexities and viewpoints would not be deliberately withheld. An honest journalist might believe the available evidence supported a strongly pro-Uber conclusion but would clearly and openly state why they believed it was warranted and welcome outside scrutiny of that conclusion. Stone’s reporting on Uber has consistently failed to meet these standards.

%%%

Eric Newcomer, the Bloomberg reporter on the day-to-day Uber beat is listed as a co-author of “Weirder and Darker.” I have deliberately focused my criticisms on Stone (Newcomer’s boss) because what I see as the major flaws in the piece are completely consistent with “Upstarts” and other past pieces by Stone and are completely inconsistent with all of Newcomer’s Uber reporting. Like the other Uber beat reporters in the mainstream business press, Newcomer’s stories have never directly addressed the central economic questions (e.g. why is Uber still massively unprofitable, is Uber actually more efficient than traditional taxis, will cities be better off if Uber achieves the industry dominance it has been pursuing), but Newcomer’s reports have always been fundamentally fair and accurate. Newcomer broke a number of the stories about Uber’s actual losses, broke the story of Kalanick’s profane tirade against the Uber driver frustrated with its pricing policies, and (unlike his boss) has never presented Uber’s preferred framing of a story as “the story”. None of the information about Uber’s huge losses that Newcomer had published is mentioned anywhere in “Weirder and Darker” or anywhere in the 335 pages of “Upstarts.” Thus I have assumed that Newcomer shared the byline because he was the original source of some of the factual events included and I have assumed Stone is primarily (if not solely) responsible for how the story was actually written.

[4] In the two months after January 27th this included Kalanick’s inept handling of his decision to join Donald Trump’s business advisory council Uber’s response to a taxi strike at Kennedy Airport, Susan Fowler’s blogpost documenting Uber’s tolerance of systemic sexual harassment, a video showing Kalanick’s profane response to a driver unhappy with changes to Uber’s pricing policies, the disclosure that Uber had used a system called Greyball to obstruct local law enforcement and Google’s lawsuit alleging Uber’s theft of its driverless car intellectual property.

I think Softbank threw money into Uber on the basis of staving off a crash & hopefully moving to an IPO. Were Uber to go under it would probably trigger a domino effect that would destroy Softbanks investments across the sector. Obviously the entire rideshare business is based on a failed business plan relying on vast expenditure to subsidise rides , disregarding laws & exploiting the underpaid drivers. The reality is that these are classic Ponzi schemes.

This Hubert Horan series on Uber has been invaluable in slaying the financial bona fides of the “world’s most valuable startup.” Still, what makes Uber so valuable is *not* its financial standing, but its legal one. “Regulatory arbitrage” does not go nearly far enough into what Uber is trying to achieve.

Here Balzac’s wonderful “Behind every great fortune there is a crime” is augmented by Hunter S. Thompson’s “the only crime is getting caught.” Uber is all about shifting the legal system to put it beyond the ability to get caught. Ever since the Magna Carta, our legal system has been founded on property rights: basically everything is owned by somebody, and the commons beyond ownership has been shrinking ever since. Uber is seeking to establish law beyond property, and beyond contracts.

Of course silicon valley loves it! With Bardeen, Brattain and Shockley’s Nobel Prize in 1956 and Moore’s Law thereafter, for 50 years as long as you didn’t invest in the absolute worst of valley ventures you were guaranteed venture returns. Moore’s Law is wrapping up, so where will the money come from now? The Internet was a lawless frontier but with the likes of Amazon, Google and Facebook that colonization is about complete as well. Bitcoin is hot for that reason — without Ponzi, where can you find venture returns?

But Uber is even better — Uber is a cab company without cars and without drivers. With Bitcoin, you best not be the last buyer. But Uber seeks to have no last buyer, and $500 million in legal expenses last year were just a down-payment on (re)writing a post-property (no cars!) and post-contracts (no drivers!) legal system. This is the new wild frontier.

‘Regulatory Arbitrage’ is what certainly propelled them thus far but what value is this now after The EU Court blew them apart? Using spin lies deception & ( bribery?) they tried to convince the world that they were different but in simple terms they are just a taxi business that refused to follow the rules.

They call it gambling & on a hunch without research or understanding ie buying the spin lies deception & flying cars. These VC’s (Vulture Capitalists) need to cop a hiding but my understanding that US Tax laws allow for losses to be wins? Please someone explain how this works & why it is allowed? In any case these vast sums of money are being wasted in destructive ventures that deliver returns to the few (Kalanick & his $1billion+ buyout).

Uber burned over $1 billion of its investors’ cash on its failed China venture, but Stone approvingly quotes Kalanick’s view that this effort was worthwhile because it was “romantic” and a chance to “do something interesting and beautiful” (p.329) and gives no indication that the China venture led to serious internal conflict.

ROFL! Is that what you told your investors, Trav? Give us a billion to go do something interesting and beautiful? Shouldn’t the word “profitable” be in there somewhere? I’ve got all sorts of romantic ideas that need funding, if that’s really how VCs roll these days.

Great series. I am interested to see the finale when the mess is finally put to sleep. Obviously there is much still ongoing eg. the US Feds investigations & litigation with Google (Waymo) will make figures/valuations & losses greater & could lead to jail time for executives. What gets me is that uber was founded & run on law breaking ie that was & still is its business. Those complicit ie the investors the banks & the VCs all had board positions, knew what was happening but didn’t say anything until the Fowler scandal broke. Whilst it is inevitable that Uber will fail the real losses & damage worldwide will be in the $trillions. Ultimately IMO those responsible are those investors who sat on the board & were aware that they were supporting a criminal organisation but said nothing. They should be made to pay ie not just lose for they facilitated funded & approved the criminal goings on.

But Stone’s approach absurdly assumes that the investors that put $13 billion into Uber are totally driven by personality issues and pay little attention to things like profitability, cash flow or return on investment.

Counterpoint: Saudi Arabia’s Public Investment Fund’s investment in Uber at the top of the market, everything Theranos, everything Tesla, and everything Jeff Immelt’s General Electric.

Like it or not, the personal branding of a very public CEO like Kalanick, Holmes, or Musk drives investment dollars almost every bit as much as actual profitability and free cash flow. There is no way to understand how Uber received a $68B valuation without analyzing these interpersonal relationships…your own analysis emphasizes this.

Profits, assets & return on investment not simply cash flow & mammoth losses are normally used to value companies. I note Warren Buffet has steered clear of Uber. With nil assets & massive losses & no USP & huge legal battles it is hard to imagine that Uber can realistically have any value at all. So how is it valued? Who comes up with these fictitious numbers? It has to be a Ponzi. Now some early investors have exited with huge payouts courtesy of Softbank but the likes of Goldman Sachs IMO may have flogged their holdings at the high valuations into smaller Mutuals of Mum & Dad pension funds as this is exactly what these criminal banksters did with sub prime mortgages leading up to the GFC. Do others see this?